Congress Increases Debt Limit for Chapter 12 Bankruptcies

Just prior to going into recess for August, the Senate on Thursday passed an American Bankers Association-opposed bill that would significantly raise the current debt limit for Chapter 12 bankruptcy filings. H.R. 2336—which would raise the debt limit from approximately $4.3 million to $10 million—passed the House in July and was brought unexpectedly to the Senate floor without consideration at the committee level, a parliamentary move normally reserved for non-controversial bills.

“We are concerned that H.R. 2336 could ultimately increase the cost of borrowing for farmers and ranchers and reduce the overall availability of credit,” commented ABA SVP Ed Elfmann, who noted that Chapter 12 bankruptcy was designed to help farmers avoid foreclosure or liquidation of their farms by reorganizing their debts—and it already includes expansive rights for debtors that do not exist in other chapters of the bankruptcy code. “The need for this significant change is especially unclear given that current debt limits under Chapter 12 are already indexed to inflation.”